A.
Costs applicable to services, facilities, and supplies furnished to the
provider by organizations related to the provider by common ownership or
control shall be included in the allowable cost of the provider at the cost to
the related organization, provided that such costs do not exceed the price of
comparable services, facilities or supplies. Purchases of existing NFs by
related parties shall be governed by the provisions of
12VAC30-90-34 B
1.
Allowable cost applicable to management services
furnished to the provider by organizations related to the provider by common
ownership or control shall be lesser of the cost to the related organization or
the per patient day ceiling limitation established for management services
cost. (See
12VAC30-90-290.)
B. "Related to the provider" shall mean that
the provider is related by reasons of common ownership or control by the
organization furnishing the services, facilities, or supplies.
C. Common ownership exists when an individual
or individuals or entity or entities possess significant ownership or equity in
the parties to the transaction. Control exists where an individual or
individuals or entity or entities have the power, directly or indirectly,
significantly to influence or direct the actions or policies of the parties to
the transaction. Significant ownership or control shall be deemed to exist
where an individual is a "person with an ownership or control interest" within
the meaning of 42 CFR
455.101. If the parties to the transaction
are members of an immediate family, as defined below, the transaction shall be
presumed to be between related parties if the ownership or control by immediate
family members, when aggregated together, meets the definitions of "common
ownership" or "control," as set forth above. Immediate family shall be defined
to include, but not be limited to, the following:
(i) husband and wife;
(ii) natural parent; child and sibling;
(iii) adopted child and adoptive
parent;
(iv) step-parent,
step-child, step-sister, and step-brother;
(v) father-in-law, mother-in-law,
sister-in-law, brother-in-law, son-in-law and daughter-in-law; and
(vi) grandparent and grandchild.
D. Exception to the related
organization principle.
1. Effective with
cost reports having fiscal years beginning on or after July 1, 1986, an
exception to the related organization principle shall be allowed. Under this
exception, charges by a related organization to a provider for goods or
services shall be allowable cost to the provider if all four of the conditions
set out in subdivision 2 of this subsection are met.
2. The exception applies if the provider
demonstrates by convincing evidence to the satisfaction of DMAS that the
following criteria have been met:
a. The
supplying organization is a bona fide separate organization. This means that
the supplier is a separate sole proprietorship, partnership, joint venture,
association or corporation and not merely an operating division of the provider
organization.
b. A substantial part
of the supplying organization's business activity of the type carried on with
the provider is transacted with other organizations not related to the provider
and the supplier by common ownership or control and there is an open,
competitive market for the type of goods or services furnished by the
organization. In determining whether the activities are of similar type, it is
important to also consider the scope of the activity.
For example, a full service management contract would
not be considered the same type of business activity as a minor data processing
contract. The requirement that there be an open, competitive market is merely
intended to assure that the item supplied has a readily discernible price that
is established through arms-length bargaining by well informed buyers and
sellers.
c. The goods or
services shall be those which commonly are obtained by institutions such as the
provider from other organizations and are not a basic element of patient care
ordinarily furnished directly to patients by such institutions. This
requirement means that institutions such as the provider typically obtain the
good or services from outside sources rather than producing the item
internally.
d. The charge to the
provider is in line with the charge for such services, or supplies in the open
market and no more than the charge made under comparable circumstances to
others by the organization for such goods or services. The phrase "open market"
takes the same meaning as "open, competitive market" in subdivision 2 b of this
subsection.
3. Where all
of the conditions of this exception are met, the charges by the supplier to the
provider for such goods or services shall be allowable as costs.
4. This exception does not apply to the
purchase, lease or construction of assets such as property, buildings, fixed
equipment or major movable equipment. The terms "goods and services" may not be
interpreted or construed to mean capital costs associated with such purchases,
leases, or construction.
E. Three competitive bids shall not be
required for the building and fixed equipment components of a construction
project outlined in
12VAC30-90-31. Reimbursement shall
be in accordance with subsection A of this section with the limitations stated
in
12VAC30-90-31 B.
